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Saturday, 28 September 2013

Outrageous Stock Market Scammers

In 1982, when Barry Minkow was just 15 years old, he started a carpet-cleaning company, ZZZZ Best from his parents’ San Fernando Valley garage. He appeared on The Oprah Winfrey Show.

By the time he was 19, Minkow had launched his company on the stock market. And less than a year later, “the company was worth $280 million on the NASDAQ exchange and Minkow had his own Ferrari, BMW and mansion in Woodland Hills.” The problem was that Minkow financed ZZZZ Best illegally, using everything from check-kiting schemes to fraudulent credit card charges and dodgy loans from criminals. He even sank as low as stealing his grandmother’s jewelry.

However, Minkow’s Ponzi scheme was destined for failure, and in 1987 it fell apart. Minkow’s scheme is now studied as an example of accounting fraud. Minkow became a preacher when he got out of prison and he was soon back to his swindling ways. In 2011, members of his church accused him of scams, leading to an FBI investigation.

In 1992, when Dennis Kozlowski became Tyco International’s CEO, Tyco was considered a blue chip and financially sound company. Kozlowski began skimming millions of dollars off the top through $450 million of unapproved stock sales and $170 million of unauthorized loans. The money financed Kozlowki’s increasingly opulent lifestyle – including a $30 million apartment with $6,000 shower curtains.

In 2001, Kozlowski threw a $2 million birthday party for his wife, with Tyco picking up half the tab. Time reports that the party was “disguised as a shareholder meeting” and that it “took place on an Italian island and featured an ice sculpture of the Statue of David urinating Stolichnaya vodka.” The infamous party is now referred to as the “Tyco Roman Orgy.”

Details of Kozlowski’s scam started to emerge in early 2002, at which point Tyco’s shares plunged by almost 80 percent in six weeks. In September 2005, Kozlowski and other company executives were sentenced to 25 years in prison. Kozlowski was eventually granted work release after serving only seven years.

Anthony Elgindy worked in cahoots with a corrupt FBI agent named Jeffrey Royer. Elgindy used Royer’s inside information about companies under government investigation in order to short-sell stocks. Meanwhile, he also used his website, Anthonypacific.com, to smear companies suspected of fraud, purportedly to protect investors.

According to prosecutors, Elgindy went as far as using the site to blackmail the targets of the negative publicity he was spreading. At the same time, he was also making millions from his website, with subscribers paying as much as $600 a month to view his “expert” stock tips.
Elgindy was charged in 2005. After four months in court, he was acquitted of most of the 32 charges he faced but was convicted of inside trading. Elgindy was sentenced to nine years in jail.

In the mid-1980s, Michael Milken, a.k.a. the “Junk Bond King,” was investment banking firm Drexel Burnham Lambert’s star financier. By 1986, he’d helped to make Drexel one of the most profitable firms on Wall Street. But insider trading brought the house down and left Drexel fighting bankruptcy.

In March 1989, Milken was charged with an astounding 98 counts of fraud and racketeering. According to The New York Times, his biggest mistake was providing the company of stock trader Ivan Boesky with huge sums of money. Boesky, says the NYT, “was betting on takeovers, many of which Drexel had put together.”
In 1986, Boesky had been implicated in a bigger insider trading inquiry and pleaded guilty, and part of his deal with the Securities and Exchange Commission (SEC) was to roll over on Milken. With this new information on Milken, the SEC launched an investigation into Drexel. Milken played it smart and pleaded guilty to six lesser charges out of the 98. He was sentenced to 10 years in prison but was released a mere 22 months later. And although he paid a significant $600 million fine (including restitutions), his total net worth in 2010 was estimated to be around $2 billion.

In 1997, billionaire Sri Lankan-American businessman Raj Rajaratnam co-founded hedge fund management company Galleon Group. In October 2009, he was arrested and charged with leading a team of insider traders. US Attorney Preet Bharara estimates that the scam yielded more than $60 million. According to authorities, between 2006 and 2009, Rajaratnam made his money by trading illegal stocks, with the help of his network of contacts. The stocks themselves included those of companies such as Google, eBay, Hilton Worldwide and Goldman Sachs.

In May 2011, a jury found Rajaratman guilty of 14 counts of conspiracy and securities fraud. And in October the same year, he received a sentence of 11 years in prison. Rajaratman was also ordered to pay a $10 million fine and relinquish $53.8 million in assets. At the time, his was the longest jail term ever imposed for insider trading.

Andrew Fastow served as chief financial officer for disgraced Texas energy giant Enron from 1998 until 2001 – when the company imploded. He “is considered the mastermind behind the financial schemes that doomed the energy company.”

Fastow and other Enron executives wove a tangled web that involved shell companies and fictitious revenue reports designed to make the company’s earnings look far, far greater than they actually were. Enron’s auditor, leading accounting firm Arthur Andersen, also collapsed in the wake of the scandal after following orders from Enron chief auditor David Duncan to destroy thousands of documents. Previously, Arthur Andersen had been ranked as one of the world’s top five accounting firms.

Bernard Ebbers was once hailed as “the Telecom Cowboy” and considered a Wall Street darling for turning small, Mississippi-based long-distance telephone company WorldCom (now MCI Inc.) into what CBS News called “a global telecommunications power, swallowing up companies along the way.”

When the stock price fell in the early 2000s, Ebbers’ shares in the company were marked as collateral for over $400 million in personal loans. WorldCom chief financial officer Scott Sullivan, whom Ebbers claims masterminded the entire scam, pointed his finger at Ebbers. Sullivan testified that Ebbers told him to manipulate the books so as to “hit our numbers.” In 2005, with the help of Sullivan’s testimony, 63-year-old Ebbers was sentenced to 25 years in prison for coordinating the $11 billion fraud that left WorldCom in ruins. It was what CBS has described as “the biggest corporate fraud and bankruptcy in U.S. history.”

Ex-NASDAQ non-executive chairman Bernard Madoff masterminded an elaborate Ponzi scheme that defrauded investors out of an estimated $65 billion. It is considered the largest financial fraud in the history of the United States.

Madoff offered seemingly low-risk, high-return investments that should have set alarm bells ringing: they were too good to be true. And while the abnormally steady returns prompted suspicion and unease among Wall Street advisers, possible investors and competitors, the statements Madoff’s firm released were too complex and unclear to really decipher. In the end, the ostensibly secure returns became massive losses for Madoff’s unsuspecting clients.

In June 2009, 71-year-old Madoff was sentenced to 150 years in prison on 11 counts of fraud, money laundering and theft.